By Donna Giese

Do you remember how complicated it used to be to process an employee final pay, the leave calculations, the tax calculations? Well, Xero has simplified the process for us.

Simple terminations are now just that. Simple.

But you still need to do your background work first.

  • Approve any pending leave and delete any future leave requests.
  • Check your employee’s leave entitlements to ensure that they are set to payout on termination where applicable from the Payroll > Employee > Leave area.

Now process your pay run.

  • Start your pay run. A final pay can be included in a normal pay run or an unscheduled pay run.
  • In the terminating employee’s pay, you need to click on “Set as Final Pay” at the bottom of the payslip
  • Select the termination date. The termination date must be within the pay period selected.
  • Select a Normal Termination for a simple termination – voluntary resignation, termination due to inefficiency, retirement).
  • Select the pay period earnings type – full pay or enter manually and enter the gross amount to be paid

Xero will calculate the tax on the unused leave and termination separately from the normal pay.


Be sure you review the payslip to ensure that the pay items and leave paid is correct and that there is a new line for the tax on unused leave.

Xero automatically assigns the termination date to the employee card and the leave balances that were to be paid on termination will show as fully paid once the pay run is posted. The termination can be reversed if you make a mistake. Unpost the pay run and make your corrections as required.

For a Genuine Redundancy / Invalidity / Early Retirement – you need to determine the tax-free payment and enter under Fixed Amount on the Redundancy line on the payslip. You can check the tax free portion with the ATO.

Remember though, if you need any help at all, call us, that why you do business … with EASE!